Wednesday, April 08, 2009

Chemicals Giant to Divest Assets to Settle FTC Merger Challenge

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

German-based BASF, the world’s largest chemical company, agreed on April 2 to settle FTC charges that its proposed $5.1 billion acquisition of rival chemical manufacturer Ciba Holding Inc. would be anticompetitive and violate federal law by reducing competition in the worldwide markets for two high-performance pigments.

Under the terms of a proposed consent order that would allow the transaction to proceed, BASF would be required to sell all assets—including the intellectual property related to the two pigments, bismuth vanadate and indanthrone blue—to a Commission-approved buyer within six months.

Pigments are small particles used to impart color to a range of products, including inks, coatings, plastics, and fibers. Both of the products at issue are high-performance pigments, offering superior durability and light-fastness compare to other types of chemical pigments. This makes them particularly suited for products exposed to sunlight and weather, such as automotive coatings. There are no viable substitutes for the two pigments in the applications for which they are used.

Unilateral Market Power

The Commission’s complaint alleged that the worldwide markets for both pigments are highly-concentrated. By eliminating competition between BASF and Ciba, the proposed transaction would allow the combined firm to exercise unilateral market power, the FTC contended, and increase the likelihood of coordinated interaction with the remaining firms in each market. Entry into either relevant market is not likely to be timely or sufficient to counteract the anticompetitive effect of BASF’s acquisition of Ciba.

Other Relief

In addition to the divestitures, the proposed consent order would require BASF to provide other relief to the eventual acquirer—such as supply agreements and protections for confidential information—and to facilitate the hiring of key employees.

The order also would allow the FTC to appoint an interim monitor to ensure that BASF complies with all of its obligations and a divesture trustee to sell the relevant assets if BASF failed to sell them within six months after the consent agreement is accepted by the Commission for public comment.

Canada Competition Bureau

On April 6, Canada’s Competition Bureau announced that commitments made by BASF to the Bureau, the European Union Competition Directorate, and the FTC resolved the Bureau’s competition concerns about the proposed acquisition.

The case is In the Matter of BASF SE, FTC File No. 081 and Docket No. C-4253. Further details appear here at the FTC website and at CCH Trade Regulation Reporter ¶16,286.

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